Last week’s top conversations were started by Scott MacKillop, David Blanchett and me, and included comments from new APViewpoint thought leader Stig Nybo. They generated thoughtful discussions on: whether risk tolerance can be measured by questionnaires; how to achieve a more holistic approach to planning; and trends and changes in the global energy market.
Scott MacKillop’s Are Risk Tolerance Questionnaires a Silly Waste of Time? received 18 comments from advisors discussing strategies to gauge client risk tolerance. Members widely agreed that it is an advisor’s professional obligation and fiduciary duty to gain an understanding of client risk preferences, and that they must construct portfolios based on the notion that tolerance can be a limiting factor. However, advisors said risk questionnaires are not an effective assessment tool, citing that it is not predictive of client behavior in challenging markets. While some advocated for the use of new risk assessment approaches based on recent research (such as revealed preferences determined by a “gamified setting”), most advisors emphasized the value of having conversations with clients about their attitudes towards different types of risk. Advisors warned their peers of the perils “of substituting mechanical risk tolerance scores for the messy business of actually communicating with clients about a very complex and nuanced topic,” and added that preventing bad investor behavior that can lead to suboptimal outcomes can be the single most important thing an advisor does for a client.
David Blanchett answered a dozen questions from members following his recent APViewpoint webinar, No Portfolio is an Island. In his presentation, Blanchett showed advisors how to achieve a more holistic approach to financial planning and portfolio optimization by analyzing each client’s wealth elements. In the subsequent Q&A conversation, Blanchett provided further insights about how advisors can use a “total wealth” approach to build a strategy for any investor based on their assets and liabilities, liability risk, tax concerns and time horizons. He recommended that advisors incorporate a subjective analysis of human capital into their strategy, such as keeping more money aside for emergencies when a client has a risky job. He also suggested advisors use tax diversification techniques, such as allocating more funds to Roth accounts when a client’s retirement income is going to be high relative to their current income. If you missed the live webinar, you can view it on the APViewpoint events page here.
My article, Trends and Changes in the Global Energy Market, about a talk given by energy expert Amy Meyers Jaffe, generated discussion about the future of oil exploration & production (E&P). The conversation provoked 11 comments in which members discussed the changing role of technology and capital in the oil and gas sector. Members agreed that the previous oil and gas super cycle “was caused by an extremely rare mix of factors, which are unlikely to be repeated,” such as a prolonged period of low interest rates, unsustainably high demand for oil due to cheap credit, commodities becoming a mainstream asset class and OPEC’s control over the markets. Moreover, they posited that capital will become an increasingly important factor in E&P valuations because there has been a democratization of technology in the field. Ultimately, APViewpoint members concluded that there will be significant future global energy demand due the expansion of transportation and shifts in demographics, and that “oil and natural gas are down, but clearly not out.”
APViewpoint will also be hosting its next CE eligible webinar, What Every Advisor Should Know About Bonds, on Thursday, June 16, at 4:15 PM ET. This presentation will be hosted by Brian Battle from the Performance Trust Companies, and it will review fixed-income allocation strategies for the current low-rate environment. You can register for the webinar on the APViewpoint events page here.
Marianne Brunet is a financial markets analyst with Advisor Perspectives.
